Behind Closed DoorsThe relationship between manufacturers and dealers.

by

Strada iQOctober 2014

Preface

With all the customer facing transparency in the auto business.

The relationship between a manufacturer and a dealer remains behind closed doors.

Its based on partnership, cooperation, influence, mutual interests, competing agendas, careers, to name a few.

The entire spectrum of human nature, behavior, comportment, drama, comes into play.

Individuals are the participants and influencers behind the closed doors

Discretion

The guidelines and directives are well known, and clearly communicated.

The subtle (the ones that make a difference) understandings are always cloaked by a veil of discretion.

The discretion often originates from who knows who, and what considerations outside of the guidelines are possible.

Acquiring a New Franchise

Imagine for a moment the level of creativity exerted through the years to acquire lucrative franchises from specific manufacturers.

It would fill contless hard drives, with stories that defy the imagination.

Now its simpler, usually involving cubic money, reinforced by new facilities that reflect the image of the manufacturer.

Buying an Existing Franchise

Once the deal is tentatively agreed between the seller and the buyer.

The manufacturer must approve the buyer to close the deal.

In many instances the manufacturer will insert clauses prior to granting the franchise to the buyer.

Again a wide spectrum of creativity is applied to consummate the transaction.

Dealer Facilities

It was the pylon facing the street, and the signage that comprised franchise identity.

Now it’s the building, the furniture, the tiles, the color scheme, to name a few.

Manufacturers have a “system” to reinforce their specific facilities requirements.

The various reps from the manufacturers share their thoughts on the dealer’s compliance to the facilities guidelines.

The dealer receives an ongoing flow of suggestions towards guideline compliance, which is often a moving target.

Fixed Operations

The countless variables in the fixed operations of a dealer, service, parts, special tools, diagnostic equipment, technology equipment, warranty claims, to name a few.

The relationship between the manufacturer and the dealer are often in a state of constant flux.

Its the “fixed op game” between the dealer and the manufacturer. Customer satisfaction is always a high priority. Often cost savings is the highest priority. Trickle down costs (from manufacturer to dealer) are an ongoing

process.

The New Model

The arrival of a new model was/is/will be an ideal opportunity for creativity on the part of the manufacturer.

“Let’s use the hot new model to further exert influence”.

Usually the hot new model will drag along several frozen in time models for the ride.

Allocations

New vehicles don’t “just flow” to dealers, they are allocated. A sophisticated algorithm will consider relevant variables to arrive at

the ideal allocation and model breakdown for each dealer. We can keep on going…

Until the algorithm is “influenced/tweaked” by humans, for a myriad of reasons.

Back in the day when zone offices had distribution clerks performing the allocations, and dealers were tracking their allocations through their sales managers.

They were interesting times…with creative negotiations that would escalate.

The human influence is a constant.

Market Share / Potential

Its in a dealer’s best interest to know what is sold in his specific market area.

Especially when big data is so prevalent. Manufacturers are constantly on the forefront of gaining incremental

sales, market share. A dealer requires an intimate, factual, granular knowledge, supported

by accurate data (not anecdotal) as to what is going on in his market. Manufacturers access immense quantities of market data that can be

used in a myriad of ways, with a kaleidoscope of nuances.

Technology

Every manufacturer has its own acronyms for the various systems that a dealer must use and pay subscription fees.

It ranges from parts catalogues, diagnostic equipment, specific hardware, software, and even web sites.

The monthly fees quickly ad up to substantial amounts, and income for manufacturers.

The Clearing Account

Its only normal that between a manufacturer and a dealer there is a common account.

The account deals with parts purchases, warranty claims, software fees, advertising credits, to name a few.

Yes…the positive cash flow is towards the manufacturer.

Reconciling the account is a fascinating monthly task.

Never Ending Imaging Campaigns

There is a constant imaging movement from manufacturers. It’s a redesigned this or that, a new concept, and new fascia. Its an ongoing process.

There are a ton of pundits sharing a ton of opinions on the ROI of the various imaging campaigns.

The astute manufacturers to keep dealers “pro active” have ongoing imaging requirements that are graded by the “system”.

The astute dealer plays the game with the manufacturer to avail himself of the benefits of the grading “system” which can be multifaceted in its implications.

Yes…there is a pronounced real estate aspect to any franchise.

Customer Satisfaction Index - CSI

We all know the saying “What gets measured, gets managed.” When the auto business started measuring customer satisfaction a few decades ago.

It was a glimpse in the level of management creativity that was applied on both sides.

How to influence and cajole surveys. How to shift the ground on the surveys. How to keep the game interesting.

With social media a customer can quickly communicate with the dealer, and manufacturer. Undergoing a fascinating step by step process.

Financial Statements

Manufacturers want well funded, vibrant dealers to represent the brand.

To ensure that dealers are well funded, and to generate metrics and composites. Manufacturers demand a monthly financial statement from their dealers.

There is a standard template for a dealer financial statement, and manufacturers even suggest the accounts for specific sales and expenses.

Financial statements empowers manufacturers to take a closer look at focused areas of the business. Fascinating what a spreadsheet jockey can do.

Having a manufacturer see every financial aspect of their business is not always in a dealer’s best interest.

Delicate Underbelly

There is a delicate underbelly to the various interactions between a manufacturer and a dealer.

Protecting the underbelly requires tact, finesse, political aplomb, with an eye on the future.

The manufacturer has several layers, the astute dealer has the equivalent layers of interaction.

Dealer groups present an interesting challenge to manufacturers.

Tip of the Iceberg

Manufacturers and dealers could fill hard drives with stories, anecdotes, facts, outcomes, camouflaged strategies, partnerships, opposing agendas, to name but a few.

We have touched the tip of the iceberg to provide a sneak peak.

One More Thing…

With increasing technology, the relationship between manufacturers and dealers will be greatly facilitated, while acquiring new layers of complexity.

Individuals will continue to influence the relationship, especially when the stakes are higher.

It will remain business as usual with discretion being the order of the day.

Think about this – manufacturers have a stable of dealers, and dealers have a stable of manufacturers.